SOLAR ENERGY, PART II: The politics of PV

by Phil LoPiccolo, Editor-in-Chief

Prodded by recent advances in photovoltaics (PV), the US government, after decades of indifference, is aggressively promoting further development and use of the technology as a means of addressing our current energy crisis, according to Rhone Resch, president of the Solar Energy Industries Association (SEIA). Speaking at the SEMICON West conference, Resch explained why, given the newly budgeted federal funding for R&D in PV and new federal incentives to spur installation of consumer and commercial systems, the time is right for high-tech companies to pursue opportunities in solar power.

According to Resch, a lot of people ask: ‘What ever happened to solar power? Where did it go?’ “What happened is that the US government turned its back on the solar energy industry, and an entire generation of solar power has been ignored,” he said. “The Reagan Administration got rid of all tax incentives and slashed funding for R&D, and there has been only private-sector money for developing this industry over the last 20 years.”

Despite a lack of federal support, however, the price of solar power has dropped 95% in the last two decades, Resch noted. Currently, the cost of solar electricity is between about $0.20-$0.40 per kilowatt-hour (kWh), which is still more expensive than other on-grid options today, he said. “But we anticipate that in the next 10 years the price will come down to less than $0.06, a price at which it will be the lowest-cost option for electricity at the retail level.”

The other thing that happened to solar power is that the industry has become the fastest-growing sector of the energy market, Resch noted. Over the past six years, for example, shipments of PV rose from less than 300MW in 2000 to nearly 1800MW in 2005, nearly a 40% CAGR.

The answer to the question “Where did solar go?” is, basically, Germany and Japan. Resch pointed out that in 1995, the US was the global leader in PV manufacturing, with some 45% market share. Today, the US accounts for only 8% of production, he said, because manufacturers in Europe, Japan, and the rest of world have been scaling up at a much faster rate (see figure, above). Germany is currently dominating the market, having doubled PV installations in 2004 from 400MW to 800MW, and adding another 300MW last year. Over the past six years, PV installations in Germany have risen at a CAGR of 80%, thanks in large part to the country’s feed-in tariff program, under which power companies pay consumers a fixed fee for the power they upload from their PV systems to the energy grid.

Although the US has been losing ground, its potential PV market is enormous, Resch contends. “The US has the best solar resources of any developed country in the world,” he said, pointing to a map showing the amount and intensity of sunlight available per year for the entire country (see figure, below). Many areas, particularly in the Southwest, have what are considered “world class” solar resources, he explained, noting that, by comparison, Germany’s solar resources are roughly equal to Alaska’s.

What can be done to develop the market in the US? “What we see from a policy perspective is that the states have been driving energy policy over the last decade,” Resch said. Indeed, thus far, about 20 states and the District of Columbia already require a portion of their electricity capacity to be supplied by renewable energy sources.

To give some perspective, in Arizona and California, alone, the new demand for solar energy is expected to be between 7-8GW over the next decade, Resch said. In comparison, the nuclear industry has announced that over the next 10 years, it is going to build 6-8GW of new power plants. “So the solar industry is going to be moving ahead quite significantly just with the state policies that are in place today,” he said.

Moreover, in addition to these state programs, the federal government appears to taking a much more aggressive role in promoting the use of solar energy. In August 2005, Congress enacted the Energy Policy Act (EPAct), which included several provisions that are significant for those in the solar business or who want to install solar systems in their homes. One stipulated that, for the first time in 20 years, the federal government would offer a residential tax credit (totaling 30% over two years, capped at $2000) for PV installations and domestic solar water heating (DSWH) systems. Another provision specified a 30% commercial tax credit, with no cap, to cover equipment and installation costs for all technologies, also for two years. Other key ingredients of EPAct specified that the federal government would buy 150MW of PV systems, as well as sell Clean and Renewable Energy bonds, guarantee loans, and increase in solar R&D to $250 million annually.

Encouraged by the renewed federal support for solar power, SEIA is working to extend and expand the solar tax credits. In fact, Resch believes that a bill currently being negotiated in the House and Senate will extend the time limit for tax credits to a minimum of three years, and more likely five or possibly eight years, and also expand the amount of the residential credit.

If implemented, such incentives could have a huge impact on economic growth. In fact, SEIA created a Roadmap — based on today’s best-case solar electricity cost of $0.18/kWh, going down to about $0.06/kWh in 10 years — that projects a 20GW market in the US. “At that point, we’d be talking about creating somewhere on the order of 50,000 jobs in the US,” said Resch. “That’s very powerful with members of Congress, and there is a whole new emphasis on the use of solar energy and solar R&D.”

Indeed, the Bush administration and those on Capitol Hill appear to be recognizing the advantages of solar power — namely, that the supply is endless, and it is the cleanest form of energy, generating no air, water, or noise pollution, and no radiation or solid waste. “These become more important when you look at key drivers for energy prices in the future, including grid stability and the rising cost of water (especially in the Southwest), natural gas, and other fossil fuels,” said Resch, also citing national security, energy independence, and climate protection as major benefits.

“When President Bush said that we are addicted to oil, that was a great recognition of our situation,” said Resch. “But while the first step of any addiction is recognizing that you have a problem, the second step is doing something about it.”

To that end, the administration did create a series of different initiatives to begin to address not necessarily our oil addiction, but some of our energy challenges, Resch said. One of these is the Solar America Initiative, a 10-year competitive research program designed to drive down the cost of solar power.

“There is going to be substantial money available,” Resch said, explaining that while in 2005 and 2006, PV research will have received $65 million and $60 million, respectively, going forward, the R&D budget for solar will double to about $130 million/year. “There are spectacular growth opportunities,” he said, “especially for high-tech companies who want to get involved in this industry.” — P.L.

Is PV a big future growth area for your business? How much emphasis should the semiconductor industry give to this market segment, vs. other high-growth areas?

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